Bringing U.S. manufacturing jobs back home

Industry rebirth could use Washington’s help, but that’s a big if

WASHINGTON (MarketWatch) — President Barack Obama loves to talk about bringing manufacturing jobs back home, but the number of companies that are “in-shoring” or “re-shoring” is hardly more than a trickle.

Yet optimism is growing that the nation is on the verge of a manufacturing renaissance. The U.S. has become a more competitive place to do business and a number of blue-chip companies such as Apple
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Google
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, General Electric
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and Ford Motor
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are expanding operations at home

Both political parties, what’s more, are keen to help speed up the trend.

Auto companies have added some 125,000 U.S. jobs since 2010.

In his State of the Union on Tuesday, Obama pushed for closer business-government ties to create high-tech jobs and to provide more technical training for students. Once again he expressed interest in tax reform that could lower corporate rates — an idea that’s tops on the list of Republican and business leaders.

On that everyone in Washington agrees. Now the question is whether both parties can really step up to the plate. So far the nation’s lawmakers have largely been AWOL.

On the rebound

U.S. manufacturers have enjoyed a nice bounce since the end of the recession, adding nearly a half-million jobs. The industry now employs almost 12 million workers and is growing employment for the first time since the mid-1990s.

Yet those gains pale in comparison to the nearly 6 million U.S. jobs that vanished from 2000 to 2010, when manufacturing employment shrank to 11.4 million from 17.3 million. Many of those jobs ended up in China or other low-cost countries.

Can some or all of those jobs come back? Right now the evidence is thin. Most manufacturing jobs created in the past three years are the result of a recovering economy. Companies that slashed payrolls in the Great Recession have been beefing up to handle rising demand.

Take carmakers and parts dealers. They’ve hired 125,000 workers since the end of the recession, accounting for one-quarter of all new manufacturing jobs, according to Labor Department data.

The companies have padded payrolls to meet a 39% jump in sales since the industry bottomed out in 2009. The number of vehicles sold climbed to 14.5 million in 2012 after hitting a decades-low of 10.4 million four years ago.

At the same time, though, reams of anecdotal evidence suggest employment in the manufacturing sector is getting a boost from U.S. companies returning operations back home. And foreign firms increasingly see America as a good place to establish deeper roots.

The hard proof, however, is lacking. No one is quite sure if the U.S. is reaping a net benefit once all the manufacturing jobs entering and leaving the country are added up.

“Unfortunately there’s not a lot of hard numbers,” said chief economist Chad Moutray of the National Association of Manufacturers. “There just isn’t a lot of data.”

The best source on employment trends might be the Reshoring Initiative, an organization that encourages U.S. businesses to return manufacturing back home. Harry Moser, founder and president, estimates some 50,000 manufacturing jobs have returned to the U.S. in the last three years.

If so, that would account for a solid 10% of the manufacturing jobs created since 2010.

Moser came up with the estimate by tallying the numbers from actual news reports of companies returning jobs to America and extrapolating from the data. Yet he acknowledges he doesn’t know how many jobs have left the U.S. during the same span.

“Off-shoring has continued,” he said. “It’s still happening.”

What it takes

So what’s it going to take to turn the trickle of in-shoring into a flood?

Business leaders, private-sector consultants and most economists say the U.S. has to slash the corporate tax rate.The official rate is 35% — the highest in the industrial world — and the U.S. is no better than middle-of-the-pack even after deductions and other tax breaks are factored in.

Moutray of NAM said U.S. manufacturing costs are about 20% higher compared to the nation’s biggest trading partners. A lower tax rate would reduce the advantage held by foreign rivals.

“Washington can create an environment to make the industry more robust,” concurred Karen Kurek, who heads the manufacturing practice at Chicago-based McGladrey, a global business-consulting firm. “President Obama has to take a hard look at taxes.”

The problem is, Democrats and Republicans have been talking about reforming the tax code for two years with nothing to show. The political trenches in Washington are dug deep and it’s hard to imagine the battle lines being easily erased. Getting less in taxes from corporations means taking more from somebody else.

Industry insiders also say the government has to get smarter about regulation, push for more free-trade deals and improve the math and science skills of American students so they can fill open manufacturing slots. Companies frequently complain they cannot find enough skilled workers.

Moser of the Reshoring Institute says education should be a huge part of the discussion.

“Kids think manufacturing is dead,” he said. “We need more people to become machinists and technicians. Everybody thinks they need to go to college.”

Advantage: U.S.

With just a bit more help from government, people involved in the industry say, the U.S. could experience a manufacturing rebirth. Companies have already done yeoman’s work to set the fuse. Washington just needs to light it.

AllianceBernstein economist Joseph Carson ticks off a number of reasons why America is a much better place to set up manufacturing operations vs. a decade ago. The cost of labor, logistics and key raw materials such as natural gas have fallen. U.S. workers are the most productive in the world. The quality of craftmanship is unparalleled. And manufacturers that remained stateside have been forced to become incredibly innovative to remain competitive on a global basis.

Perhaps just as significant, experts note, wages in China and other far-away countries have surged over the past decade to narrow the gap with U.S. workers. Costs to ship goods back to the U.S. from China, especially bulky items, are another formidable expense.

“There are a lot of positive trends in place, but it may take awhile to show,” Carson said. He believes manufacturing could generate 20% of the growth in the U.S. economy in the next decade compared to just 13% now.

Whether lawmakers cement those trends in place remains to be seen. The White House has pushed small initiatives such as worker retraining and matching up manufacturers with skilled employees — goals applauded by industry.

Yet the Obama administration has also hampered manufacturers by excessive regulation, industry people say, and by higher tax rates that hurt midsize companies whose owners file as individual taxpayers.

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